What to Do after Receiving Notice of Bankruptcy

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What Steps Should I Take after Receiving a Notice of Bankruptcy?

When a debtor enters bankruptcy, they are required to notify their creditors.

If you are a creditor and you have received a notice of bankruptcy, there are a few things you should do in order to ensure that you can at least receive some of the money you are owed.

The first thing you should do is to stop all collection activities. This might include phone calls, mailings, sending bills, and lawsuits. A debtor who files for bankruptcy is legally entitled to an automatic stay of collection actions for a set period of time. Failure to stop collection activities could compromise your ability to recover.

Additionally, whether or not you can recover once a debtor files for bankruptcy depends on what priority your claim has.

How Is Priority Determined in a Bankruptcy Claim?

In bankruptcy, any available, disposable assets that the debtor has will go to pay off as much of his or her debts as possible. Secured debts (debts with collateral attached) are usually easier to collect, since they are treated as having a higher priority, and there is usually a piece of property (a car or a house) from which the creditor can collect to secure the debt.

If a creditor is owed a relatively small amount, and the debt is unsecured, it will probably be a very low priority for repayment. This means that the creditor will not be able to get a piece of the debtor’s available assets until all higher priority debts have been satisfied. As a practical matter, this means that the creditor is unlikely to recover much, if any, of what it is owed.

The amount of money a creditor can reasonably expect depends on the type of debt (secured or unsecured), the debt’s priority, the number of creditors in line to collect first, and the total size of the debtor’s disposable assets.

If the debt is non-dischargeable, however, priority is irrelevant. This is a debt that survives bankruptcy, and includes student loans, fines and civil damages resulting from a drunken driving accident, and child/spousal support.

Should I Hire an Attorney?

Hiring a bankruptcy attorney is a good idea, as he or she will be able to advise you on the status of the debt and what you are likely to recover. If the debt is very low in priority and for only a small amount, it is probably not worth the time and expense to file a claim with the bankruptcy court.

If a bankruptcy attorney advises you that your debt is worth pursuing, a claim should be filed with the court immediately. The deadlines for filing a claim are usually very short and are strictly enforced.

If advised by your attorney, you should also consider attending the first meeting of creditors (also known as a 341 meeting). These meetings allow creditors to obtain information about the debtor.

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Last Modified: 10-29-2013 04:10 PM PDT

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